May Receiver Deny Ponzi Recovery Distributions To Self-Directed IRA Investor?

A financial adviser client sold an investment opportunity to his own clients which, unknown to him at the time, was a ponzi scheme. A receiver was appointed over ponzi assets. In addition to promoting the investment scheme to his own clients, my client invested his own money from his self-directed IRA. The receiver does not want my client’s IRA to receive any  ponzi distributions because of role as a sales agent.

My client asked whether his IRA can be penalized for his personal sales activity because IRAs are exempt from claims under Florida law. In the first place, an IRA is a self-settled trust for the benefit of the owner/beneficiary who contributed pre-tax money. The IRA is not an entity distinct from the owner in that respect. Florida’s IRA exemption protects the money from levy or garnishment creditors in legal proceedings. The receivership is an equitable proceeding. The receiver may consider all factors pertaining to an equitable distribution of available ponzi assets. Just because my client’s investment was paid from his IRA, the IRA exemption does not protect my client from the equitable consequences of his participation, intentional or unknowing, as part of the ponzi scheme. The receiver may deny my client a distribution regardless of the source of his investment.

On the other hand, if the receiver obtains a civil judgment against my client to “claw back” sales commissions paid him by the ponzi scheme then the IRA exemption comes into play. The receiver could not collect his claw-back judgment from funds remaining the client’s IRA.

Last updated on May 22, 2020